Economics Answers

Explain an important assumption behind the upward slope of the AS curve

True or False:
If the economy is near the full-employment level of output, the AD/AS analysis of a change in government spending or taxation will be different from the Keynesian analysis.

The federal government notices the economy is heading into a recession, and determines to engage in expansionary fiscal policy. However, six months later, when the policy is enacted the economy is enjoying very low unemployment. What happens?
A. The economy must still be in a recession, since it's been only six months, so the expansionary policy will pull the economy out of the recession.
B. The expansionary policy causes an initial increase in AD, which leads to a decrease in AS.
C. The expansionary policy causes the price level to fall.
D. The expansionary fiscal policy shifts the long-run AS curve to the left.
The expansionary fiscal policy shifts the long-run AS curve to the right.

Evaluate the possible disadvantages of a free market approach to providing
health care.

Discuss the role of Nairobi Securities Exchange in the Kenyan economy (10 marks)

What are the practical difficulties of a small scale enterprise wishing to obtain credit to expand production?

Distinguish between internal and external sources of finance for a limited liability company.

State one reason why supply-side economics (reducing corporate and individual taxes) has not reduced income inequality?

a) Consider the following payoff matrix of player 1 and player 2

Production Launching Game

PLAYER 2
PRODUCT A PRODUCT B PRODUCT C
PRODUCT D 3, 6 7,1 10,4
PLAYER 1 PRODUCT E 5,1 8,2 14,7
PRODUCT F 6,0 6,2 8,5


Using iterative elimination of dominated strategies approach, we can find the equilibrium of the game
(6Marks).

Suppose that two identical firms produce laptops and they are the only firms in the market. Their cost functions are given by TCl = 60ql and TC2 = 60q2 where q1 and q2 are output of firm 1 and 2 respectively. Price is determined by the following demand curve:
P = 300 — Q where Q = q1 + q2.

i. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this equilibrium.

ii. What are the characteristics of a Cournot Model?

iii. Assuming that firm 1 moves first to choose the level of output to produce, how much output will each firm produce? What will be the equilibrium price? How much profit will each firm earn?

iv. Suppose the managers of the two firms collude, what will be the equilibrium quantities, price and profit for each firm?

Explain the various differences between forward and future contracts